Blood Is Thicker Than Talent

There is a remarkable article in yesterday's Wall Street Journal outlining the internal fight that took place in Toyota over the last few decades between the Toyoda family and the professional managers who took over running the company. In many ways it mirrors the battle between the lean community and the financially driven mercenaries who hijacked American and other western manufacturing companies over the same time period.

In one corner we have Akio Toyoda stating that "some people just got too big-headed and focused too excessively on profit.". On the other side are the outside managers who whom Jim Press(obviously not a Toyoda but clearly a man who understands the principles the family built the business on) described as "financially oriented pirates", about whom he opined "didn't have the character to maintain a customer-first focus."

He is clearly right. You can almost feel the arrogance dripping from Hiroshi Okudo's lips when he said, "Akio-class talents are rolling around all over Toyota, like so many potatoes." Okudo was Ken Watanabe's co-conspirator behind the change in Toyota strategy and culture from wanting to be the best to driving to be the biggest. The rationale of these guys – whether at Toyota or anywhere else is summed up by the statement of a Watanabe aide, "One of our biggest social responsibilities is to generate profits and pay taxes. To criticize the company's effort to maximize profits and thus taxes is just complete nonsense." The rationalization is that profit is a social responsibility of its own. You somehow fulfill your moral obligations to the rest of the stakeholders – employees, customers, the community – by making a lot of money even when you make it by abusing them. How that fulfills a social responsibility calls for a logic that escapes me.

Guys like Watanabe and Okudo don't think like Akio Toyoda, Bill Ford, Greg Wahl, Fisk Johnson from SC Johnson or our long time reader Costikyan Jarvis. Those guys have their family name on the product – and on the side of the building and on the employee's paychecks. It is about a lot more than this quarter's profits to them. It is about their reputation and their legacy. It is about how their entire family will be seen in the community, and about what sort of future they are creating for their children and grandchildren. A guy like Okudo who thinks it is only about being smarter and having the most clever strategy to make money for himself and the company as fast as possible will never understand.

The lean principles that propelled Toyota to amazing heights and constitute the foundations of lean thinking – a long term view, a focus on cash and fundamentals, a commitment to the employees and the suppliers, and an even more intense focus on the customers – are deeply ingrained in family business owners. And they are quite often beyond the comprehension of the paid mercenary to who employees, customers and products are so many figures on a piece of paper to be cleverly manipulated.

The family manufacturing leaders I mentioned above may well not be the most intellectually gifted business managers by the standards set forth by the Okodos and Watanabes – and Jack Welches – of the world. But they have a set of values and commitments that make them extraordinary leaders. Far from being common, leaders like these are very hard to find because so few have the strength of character to match their level of commitment. They have one other very important shared attribute – Bill Ford, Greg Wahl, Fisk Johnson, Costikyan Jarvis and, up until the Watanabe types took over, the Toyoda family – made a lot of money for their company on the strength of their principles and in spite of their lack of Okudo/Welch level intellectual prowess.

In fact, what are as common as a "so many potatoes" are the professional managers like Okodo and Watanabe whose record is one of short term brilliance and long term failure.

The flawed perspective that “One of our biggest social responsibilities is to generate profits…” comes from libertarian Nobel Prize winning economist Dr. Milton Friedman, in his 13 September 1970 New York Times Magazine article “The Social Responsibility of Business is to Increase Its Profits” (see http://www-rohan.sdsu.edu/faculty/dunnweb/rprnts.friedman.dunn.pdf). Fallacious and misleading ideas such as this are deeply embedded in the minds of executives and tell us exactly what we should be working on if we wish for Lean management to prosper and survive.

Just as the Delphi bankruptcy in 2005 caused the lean community to question what it really means to be lean, so Toyota’s crisis is causing us to examine the larger questions of industrial management and business philosophy. These “hansei” discussions need to happen in every boardroom and business school in the land.

Long term profitability is a result of doing many things right including the providing of extraordinary value to customers and developing the capabilities of employees. Many of the world’s most successful companies don’t have “providing value to the shareholders” as a piece of their mission statement. Short term cost cutting that shortchanges the customer is a recipe for failure.